How Trump's tariffs can be a Force Majeure event for some contracts

And why it depends on what a particular contract says

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This morning we said “Hello!” to Force Majeure.

As as the second Trump presidency runs out of constitutional law topics for legal pundits, it now moves onto contract law.

(Soon it will be, no doubt, moving onto insolvency law and civil emergency law.)

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The reference to Force Majeure was in this Guardian live blog news item:

The Reuters news report mentioned is here.

That report says:

“Pittsburgh-based Howmet said in the letter to customers that it has declared a force majeure event, a legal practice that allows parties to a contract to avoid their obligations if hit by unavoidable and unpredictable external circumstances.

"Howmet will be excused from supplying any products or services that are impacted by this declared national emergency and/or the tariff executive order," Howmet wrote in the letter.”

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When this news broke, some pundits earnestly opined on whether Trump’s tariffs were indeed a Force Majeure event or not.

But their opinions on this have no weight, unless they have actually seen the Force Majeure clause in the relevant contract (as well as the contract as a whole).

For a Force Majeure event is whatever the parties to a contract agree it to be.

And the consequences of that Force Majeure event is also what the parties to a contract agree it to be.

Some contracts have wide Force Majeure provisions, some have narrow ones, some have none at all (and I have even seen one with two such provisions, contradicting each other, in a Frankenstein monster set of terms and conditions which had been cobbled together by thoughtless copy-and-paste over years).

So let this blog try to explain what Force Majeure means in contract law.

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To start with: a contract is the means by which two or more parties agree how a transaction is to be carried out.

Many - perhaps most - contracts are simple: you want to buy a chocolate bar and somebody sells it to you, ownership of the confectionery going one way, and cash going the other.

But as contracts become more complex, the parties agree more provisions: what happens if a party does not pay? what happens if the chocolate bar is not delivered? And so on.

The more important or complicated (or, frankly, expensive) a transaction, the more of these allocations of risk are agreed between the parties.

Until you have pages and pages of clauses and clauses covering various possible situations.

In this way, many contracts do not exist for when a transaction goes well - indeed the terms and conditions are then soon forgotten.

The contract instead exists to regulate the consequences of a contract going badly. The parties - or a court - can then look at what was agreed and say: this is what the parties agreed what would happen in this eventuality.

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But.

A contract cannot cover all possible eventualities.

Some events that could affect the ability of a party to carry out their obligations are unforeseeable or outside the reasonable contemplation of the parties

Other events are simply outside the risks which the parties could reasonably allocate in that particular contract.

What then happens if and when such an event occurs?

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Well.

Unless the parties have agreed otherwise, the effects of such an external event would be left to general contract law.

In England, that would usually be the aspect of contract law known as Frustration - which really should have this name because it is a frustrating area of law.

In essence, it may be uncertain what will happen when court applies the doctrine of Frustration.

And so the parties in most complex contracts agree not to leave it to the courts, and they instead agree what would happen next in the event of such an event.

These provisions are usually called Force Majeure clauses.

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A Force Majeure provision typically is comprised of two parts.

The first part of a Force Majeure provision lists the events what the parties agree would be Force Majeure events. Usually these include “Acts of God” and natural disasters, as well as riots and rebellions, and so on.

But some lists go on to include many possible events outside the control and/or reasonable contemplation of the parties.

(Once when I was acting for HM Treasury I was told - somewhat fairly - by the other party in a contract negotiation that the UK joining the Euro could not be a Force Majeure event as it would be in control of the UK government.)

Sometimes the clause will (also) provide a defintion of what would constitute a Force Majeure event.

The second part of a Force Majeure provision, which is sometimes overlooked in practice, is what then happens in the event of a Force Majeure event.

Sometimes it is that certain specific obligations do not need to be performed, sometimes it is that the entire contract falls away. Badly drafted provisions can inadvertently mean that parties can get away with not paying anything from before the Force Majeure event.

It all depends.

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When a lawyer says “it all depends” that lawyer should be able to instantly, if challenged, say what the dependencies are.

And with a Force Majeure clause, it should depend on what the parties have agreed such an event to be, and then what will happen.

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In practice there are two common problems when a party seeks to invoke a Force Majeure clause.

The first problem is such clauses are often not properly reviewed before an agreement is signed. This is because such clauses are seen as boilerplate, copied over from on contract to the next, without any proper consideration. “There is a a Force Majeure clause,” it is thought, “no need to actually read it as long as it is there. Next.”

The second problem is such clauses cannot and should not be read in isolation. I have known one case where an attempt to invoke a Force Majeure clause was defeated by the extensive flowery recitals to a contract setting out what the parties did envisage. (Whoopsie.)

Other Force Majeure clauses do not cohere with (and sometimes even contradict) provisions dealing with the effects of termination, and this causes all sorts of problems.

No Force Majeure clause is an island.

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And so: can Pittsburgh-based Howmet (or anyone else) declare a Force Majeure event?

Can Howmet be “excused from supplying any products or services that are impacted by this declared national emergency and/or the tariff executive order”?

It depends.

It depends on what the parties agreed would be a Force Majeure event at the time the contract was entered into.

It depends on what the parties agreed what would happen in the event of a Force Majeure event.

It depends on how well drafted the Force Majeure clause is, and how it sits within the contract as a whole.

And it depends on whether this really is a sensible thing for a party to a contract to invoke.

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In one way, Trump raising tariffs was an entirely foreseeable event.

It is one thing - maybe the only thing - he has never lied about.

Whether this is enough to release business form their existing contractual obligations will depend on the contract.

But it certainly should be enough to get business anxiously checking their existing contracts.

And who knows, it may mean that parties will put more thought into Force Majeure clauses in future.

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Note: this post is written from the perspective of an English common law lawyer with some experience of international contracts. It is certainly not legal advice, and American law may differ from English law.